Why the Time to Begin Preparing for the Libor Phaseout—is Now
Libor, the widely used inter-bank lending rate, is on track to be phased out by the year 2021. With approximately $350 trillion dollars of derivatives and other products linked to Libor, the discontinuation of this key benchmark rate is expected to create significant legal, operational, valuation and risk challenges for effected firms.
We’ve now come to a point where financial oversight bodies in many countries have published timelines regarding when Libor will be replaced with alternative benchmarks. However, FINCAD research has recently shown that an overwhelming majority of investment firms still do not know how they will transition away from Libor towards a new benchmark. Proposed replacement rates, such as SOFR for the US and ESTER for the EU, are not quoted in the same way that Libor has been, only serving to complicate the transition process.
In FINCAD’s newly released video above, Christian Kahl, PhD and I delve into the impending end of Libor and transition to new risk-free rates, the implications for the Industry and need for new technology. We also explain why the time to start preparing for the Libor phaseout is now.